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Mortgage Liability Types

A big part in figuring what size mortgage you can afford comes from understanding your current debt situation. It is important to consider the complete picture of debt, not just how much and who it’s owed to, but how to account for it on a mortgage application.

Revolving Credit

Credit that is automatically renewed as debts are paid off. The most common form is a credit card.

For your mortgage application, if there is no minimum payment reported you would include the greater of $10 or 5% of the balance.

Installment Credit

A loan for a fixed amount of money such as a student loan or an auto loan. The borrower agrees to make a set number of monthly payments at a specific dollar amount.

On a mortgage application, you shouldn’t include an installment credit as debt if the payments will continue for ten months or less. Also, this must be included if the payments are deferred unless it’s a student loan with an income-driven payment plan that shows a $0 payment.

Lease Payments

Automobile lease payments or property rental lease payments for properties other than your primary residence (i.e. paying rent for a dependent or a business).

Child Support

An ongoing, periodic payment made by a parent for the financial benefit of a child.

Child support payments should not be included as a debt if the payments will continue for ten months or less.

Alimony

An ongoing, periodic payment made by a former spouse as a result of a divorce.

Alimony payments should not be included as a debt if the payments will continue for ten months or less.

Separate Maintenance Payment

Similar to alimony, a way for one spouse to continue to support the other during separation.

Separate maintenance payments should not be included as a debt if the payments will continue for ten months or less.

Business Debt

Business debt that appears on your personal credit report and/or that’s in your personal name. If the debt is paid out of company funds and the account has no late payments then it doesn’t need to be included as a debt.

Open 30-Day

Charge accounts that require the balance to be paid in full every month.

On your mortgage application, you should report the balance on these accounts as it will be deducted from available funds for closing but will not be counted as a debt.

Federal Income Tax Installment Agreements

An installment agreement with the IRS to repay delinquent federal income taxes.

These payments can be included as a debt on a mortgage application if you have an approved IRS installment agreement and there are no late payments otherwise the entire debt has to be paid off at or before closing.

Garnishments

A legal process that instructs your employer to deduct payments directly from your wages. These should not be included as a debt on your mortgage application if the payments will continue for ten months or less.